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Which way will he go?

There was question in the media about exactly how president-elect Obama planned to deal with the economic crisis. Some have speculated that he would move right with moderate economic policies that would foster growth the old-fashioned way – by creating wealth through the methodical process of wise capital formation and deployment. And several of his appointments including Reagan-era Fed chairman Paul Volcker, Christina Romer, a tax cutter from UC Berkeley, and Tim Geithner at Treasury indicate that he may be prudent in this area.

But for those who are skeptical about a candidate who said he wanted to “spread the wealth around,” Obama’s  Saturday November 22 radio address offered some troubling language. Here are excerpts from the address followed by observations:

Excerpt: The news this week has only reinforced the fact that we are facing an economic crisis of historic proportions. Financial markets faced more turmoil. New home purchases in October were the lowest in half a century. Five-hundred-forty-thousand more jobless claims were filed last week, the highest in 18 years. And we now risk falling into a deflationary spiral that could increase our massive debt even further.

Observation: This is Obama talking down the economy. We would never get this from an optimist or a conservative. Ronald Reagan would have said something like: “We have challenges that we will meet with American optimism”. When Obama aides said that the current economic crisis offers an historic opportunity to reshape the economy, they were really talking about reinstating Roosevelt-type New Deal policies which utterly failed to improve the economy of the 1930s. Let’s hope Obama resists temptation. Volcker is a good sign he might. But you never know.

Excerpt: While I’m pleased that Congress passed a long-overdue extension of unemployment benefits this week, we must do more to put people back to work and get our economy moving again. We have now lost 1.2 million jobs this year, and if we don’t act swiftly and boldly, most experts now believe that we could lose millions of jobs next year.

There are no quick or easy fixes to this crisis, which has been many years in the making, and it’s likely to get worse before it gets better. But January 20th is our chance to begin anew – with a new direction, new ideas, and new reforms that will create jobs and fuel long-term economic growth.

Observation: Obama here is setting the table for big government intervention in the economy in addition to the $1+ trillion in bailouts already in effect. “A new direction, new ideas, and new reforms” is nothing more than the same old stuff: Use the government to try and fix the economy. It will not work. He has talked about $500 billion more in economic stimulus. This is just throwing money at a problem that requires patience. Perhaps his appointees will talk him out of it.

And indeed the crisis has been years in the making, but it has evolved out of Obama’s ideology – decades of massive government waste, corruption at Fannie Mae, and laws like the Community Reinvestment Act that forced private banks into the role of social engineers.

Excerpt: I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 – a plan big enough to meet the challenges we face that I intend to sign soon after taking office. …We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels…

Observation: Obama plans to create these 2.5 million jobs using the government as an employer, creating huge new deficits. He can easily create 5 million or 10 million jobs in this way if he is willing to take on enough debt. But it will not improve the economy in the long term. Only private growth will do that.

The whole idea of “rebuilding our crumbling roads and bridges” is classic socialism and is exactly the route that FDR took between 1933 and 1938 with make-work government jobs building roads and bridges and other public projects. It did not work. The unemployment rate was higher in 1938 than it was in January 1933 when Roosevelt took office.

“Modernizing our schools” is just another term for throwing more billions into the pot for the public school bureaucracy and the teacher unions, which then will contribute it back to the Democrat party. The public schools have been failing for decades now. Why give them more money?

Meanwhile Obama’s plan to finance “wind farms and solar panels” with government cash is nonsense. Think ethanol. The whole pie-in-the-sky ethanol program, touted for years by environmentalists, has turned out to be hugely inefficient, has pushed up food prices by diverting large amounts of the corn crop to fuel, requires tens of billions in government subsidies, and never even has been shown to produce more energy that it consumes. In other words, ethanol production is voraciously consuming three critical things – food, energy and capital, while its government subsidies hide its real effects. Wind farms and solar panels will be no different.

Excerpt: These aren’t just steps to pull ourselves out of this immediate crisis; these are the long-term investments in our economic future that have been ignored for far too long. And they represent an early down payment on the type of reform my administration will bring to Washington – a government that spends wisely, focuses on what works, and puts the public interest ahead of the same special interests that have come to dominate our politics.

Observation: Obama talks about “investments”, but most government spending is not “investment” because it relies on taxation, which is the nationalization of private investment capital. Private capital in private hands is true “investment”.

To learn more about “investment”, just go to the states where the economies were collapsing long before the financial crisis hit and you will find Democrats in control with their big government spending programs and high tax levels. New York State, Vermont, Rhode Island, Massachusetts and Michigan all voted overwhelmingly for Obama and have had the worst economies in America for years now. Obama’s own Democrat-dominated state of Illinois is 45th in job creation of the 50 United States.

In Obama’s big economic rollout on Monday, November 24, he called for more government spending including a tax cut for the “vast majority” of Americans in the middle class paid for by the nation’s “wealthiest”. Let’s hope Volcker and Romer talk some sense into Obama.

Here is an excerpt from the article ‘Irrationalizing Employment Growth’ in the *National Review *of September 14, 2004, by contributing editor Tom Nugent restating a well-established fact that increasing taxes on upper-income citizens harms the economy:

In particular, Democrats continue to press the idea that the first four Bush years have turned in the worst rate of job growth since the Hoover administration. The president’s detractors, however, should be made aware that Hoover raised taxes on the wealthy (just as Kerry proposes) and encouraged the Smoot Hawley tariff to protect farmers from foreign competition (just as Kerry wants to protect U.S. workers from outsourcing). These policies are given the blame for the Great Depression, which hit during Hoover’s one term as president back in the 1930s.

So not only has Obama talked about “taxing the rich” but he is protectionist as well, which will hurt our economy just as Smoot Hawley did. He campaigned on renegotiating free-trade agreements with South Korea, Mexico, Canada, Colombia and the Central American region. Pray that Volcker and Romer can get to him to leave these pacts alone and to encourage free trade.

Regarding Obama’s plan to genuinely cut taxes for the middle class: The Democrat party has relentlessly taxed the middle class over the last 50 years. Real tax reform would permanently encode significantly lower tax rates for the entire middle class. Obama won’t do this. He already has plans to increase the Social Security tax and increase taxes in many other ways.

Obama has sent so many mixed signals that even normally level-headed Fox News headlined its story about Obama’s November 25 press conference like this: ‘Obama Promotes Fiscal Restraint, Big Spending’

Huh?

What we do know is that the Fox headline is half right. Obama probably is going to do one thing to restrain spending and that will be to cut the military substantially as Bill Clinton did. Clinton went farther however, gutting out intel agencies too, which led to 9/11. In the wake of the Mumbai, India terrorist attacks of November 26, we must realize that vigilance it crucial. Whether Obama plans to remain vigilant economically or militarily is another story. Time will tell.

Please visit my website at www.nikitas3.com for more.

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